

[Federal Register: January 25, 2006 (Volume 71, Number 16)]
[Notices]               
[Page 4189-4190]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25ja06-121]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53139; File No. SR-Phlx-2005-67]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval of a Proposed Rule Change and Amendment No. 1 
Thereto Relating to the Maintenance, Retention, and Furnishing of 
Books, Records, and Other Information Regarding Payment for Order Flow

January 18, 2006.
    On November 3, 2005, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend Phlx Rule 760 
(Maintenance, Retention and Furnishing of Books, Records and Other 
Information) to incorporate recent changes to the Exchange's payment 
for order flow program. On November 22, 2005, the Exchange filed 
Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change, as amended, was published for comment in the Federal Register 
on December 14, 2005.\4\ The Commission received no comments on the 
proposal. This order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 provided clarifying language to Phlx Rule 
760 and the purpose section of the filing.
    \4\ Securities Exchange Act Release No. 52903 (December 7, 
2005), 70 FR 74082 (December 14, 2005) (SR-Phlx-2005-67).
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    The Exchange recently amended its payment for order flow program 
for trades settling on or after October 1, 2005 (``October 
program'').\5\ The Exchange represented that Registered Options Traders 
who receive electronically-delivered orders directed to them 
(``Directed ROTs'') may, pursuant to the October program, direct the 
Exchange to make payments to order flow providers on their behalf.\6\ 
Thus, the Exchange proposed to amend the Supplementary Material to Phlx 
Rule 760 to clarify that these Directed ROTs would now be required to 
retain records relating to payment for order flow arrangements.\7\ The 
Exchange also proposed to amend the Supplementary Material to Phlx Rule 
760 because the Exchange's current payment for order flow program no 
longer tracks payments to order flow providers on an option by option 
basis. In addition, the Exchange noted that specialists and specialist 
units no longer need to maintain records relating to the use, transfer, 
and distribution of payment for order flow funds because they would now 
direct the Exchange to make payments to order flow providers on their 
behalf. The Exchange further proposed to specifically request that 
books and records regarding the rate (whether on a per contract or flat 
fee basis) that is paid to order flow providers and the basis for the 
amount that Directed ROTs, specialists, and specialist units direct the 
Exchange to pay to order flow providers be maintained and made 
available as may be requested by the Exchange.
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    \5\ The October program is in effect as a pilot program that is 
scheduled to expire on May 27, 2006. See Securities Exchange Act 
Release No. 52568 (October 6, 2005), 70 FR 60120 (October 14, 2005) 
(SR-Phlx-2005-58).
    \6\ The Exchange represented that under previous payment for 
order flow programs, specialist units requested reimbursement from 
the Exchange for monies they paid to order flow providers. Pursuant 
to the October program, the available payment for order flow funds 
would be disbursed by the Exchange according to the instructions of 
the specialist units and Directed ROTs.
    \7\ The Exchange represented that specialists/specialist units 
are already specifically required to maintain these books and 
records.
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    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\8\ 
The Commission believes that the proposed rule change, as amended, is 
consistent with section 6(b)(5) of the Act \9\ in that this proposal is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and

[[Page 4190]]

facilitating transaction in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and in general, to protect investors and the public interest. 
The Commission believes that the proposed rule change clarifies the 
parties that must maintain records relating to payment for order flow 
arrangements and the nature of the records to be maintained. The 
Commission also believes that the proposed rule change would assist the 
Exchange in determining whether its payment for order flow program is 
being carried out in accordance with the Exchange's requirements.
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    \8\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-Phlx-2005-67), as amended, 
is approved.
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-924 Filed 1-24-06; 8:45 am]

BILLING CODE 8010-01-P
